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The Federal Reserve Issues Double-Size Rate Hike To Tame Inflation

By Cristian Bustos. Originally published at ValueWalk.

Interest Rate Goldilocks Rate Hike Balance Sheet Runoff end of coronavirus stimulus checks

The Federal Reserve is preparing to tackle soaring inflation with a more decisive approach and has announced the first double-size rate increase in 20 years. The move could have an enormous impact on economic growth and affect the pockets of millions in the U.S.

The Federal Reserve Hike

As reported by CNBC, the Fed has announced a two-decade record interest rate hike as inflation soared to a 40-year record high in March. With this, the central banking system wants to release inflationary pressure and close in on growing consumer prices.


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Despite hiking the interest rate by a quarter-percentage point back then, a half-percentage point increase after Wednesday’s meeting has been approved, which has become the fastest rate hike since 2000.

Traders think that further half-point hikes might also take place in June and July.

Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence and a previous adviser to a former Dallas Fed president, said: “The Fed would shock markets if it failed to deliver on more aggressive policy via a 50-basis point rate hike on Wednesday.”

A Soft Landing, Unlikely

DiMartino asserted that the Fed’s new approach will be down to “just how many half-point hikes the Fed expects to initiate over the balance of 2022.”

Also, to constrict credit for real estate, the Fed is set to reduce its almost $9 trillion balance sheet by a rate of $60 billion a month in Treasuries and $35 billion in mortgage-backed securities, Fox Business reports.

“By comparison, the Fed trimmed its balance sheet at a rate of $50 billion a month from 2017 to 2019.”

Facing criticism on how quickly the Fed has reacted to snuff out inflation, Chairman Jerome Powell said a few days ago, “It is appropriate to be moving a little more quickly.

“I also think there’s something in the idea of front end-loading whatever accommodation one thinks is appropriate. So that points in the direction of 50-basis points being on the table,” he added.

DiMartino says, however, that the opportunity for a soft landing of the economy has already passed: “The window for the Fed to engineer a soft landing has likely closed, since the economy is already starting to deteriorate before the bulk of the Fed’s inflation-fighting tightening actions has taken place.”

Updated on

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